Thursday, June 27, 2013

The FCC is
now considering the evolution of the telecommunications network from the
existing “public switched telephone network” to an Internet Protocol-based
network.AT&T's recent petition filed
at the Commission requesting IP-transition trials, along with other proposals,
is prompting increased attention to the inevitable transition to an all-IP
network.

Former
Chairman Genachowski tasked an advisory committee, the Technology Advisory Council,
to look into the transition and make recommendations for possible FCC actions. In a 2011
Memorandum, the head of the TAC, Tom Wheeler, recommended, among other
things, (1) establishment of common metrics to promote broadband network quality
and (2) identification of potentially stranded investment in equipment consumers
use to obtain services using the PSTN. The
TAC recommendation seemed to be encouraging public discussion, not necessarily
government regulation.

Now, of
course, Mr. Wheeler is the Obama administration’s nominee to Chair the FCC. He
is well-respected, and he has extensive involvement with the telecommunications
industry. In the written
testimony for his June 18 confirmation hearing, Mr. Wheeler stated: “Competitive
markets produce better outcomes than regulated or uncompetitive markets.” This
perspective is highly commendable because it recognizes that private enterprise
competing in the marketplace can make better decisions than government, which
doesn’t suffer adverse consequences from potentially ill-conceived decisions.

In
describing the transition to an IP network in response to a question, however, Mr.
Wheeler said that the transition should not happen without the Commission
developing a “stratagem” to develop a “planned structure” to “mitigate” the
transition’s impact.He opined that
individual companies changing things on their own could lead to “dislocations
and harm to consumers.”

It is
unfair, of course, to take individual statements out of context, and general congressional
testimony is untethered from a factual context necessary to most decisions. But,
considered in one vein, Mr. Wheeler's comments possibly could be taken as favoring
too much government management of the transformation of the network, like the
government did when over-the-air TV was converted to digital, an example Mr.
Wheeler identified in his oral testimony.However, the TV digital transition was clearly a different animal
because TV stations used government-owned radio spectrum. The spectrum rules needed
modifying for the digital age and to protect against interference.

The
PSTN, on the other hand, was built largely with private plans and investment.In 2010, the FCC
reported that the telecommunications industry had made approximately $777.7
billion in private capital expenditures for the years 1998-2008. Over this same
10-year period, the report concludes that only approximately $34.6 billion, or
4.4 percent, was funded through federal universal service support, which was paid
for by consumers. Even much lower investment was made possible through public
grants and loans:the Rural
Utilities Service reports that some $13 billion has been invested through
its telecommunications program, mostly of that amount through loans.

Even
though the wireless part of this network involves government-regulated radio spectrum,
there has been virtually no wireless operations regulation or network
management.The government did almost
nothing to create a “planned structure” and the vast majority of consumer “dislocations,”
if any, were not caused by network operators. Other than very limited consumer regulations,
what part of the wireless network development required “impact mitigation”?

This
private-investment-based network of networks is most certainly evolving from an
analog, circuit-switched model, to a digital, IP-based model. This is happening without government mandates
and is occurring for legitimate business reasons. Consumers want these improvements and are
willing to pay for them.

Mr.
Wheeler’s prepared testimony appears to recognize this fact. But the hypothetical
notion that the FCC might help to create a “plan” for the transition to the IP
network to prevent disruptions caused by individual company decisions at the
same time says way too much about government’s potential benefits, and way too
little about the benefits of competition and private investment. The notion of government management of private
decisionmaking, or a “planned structure,” quite often leads to disastrous
results because the “management” is guided by amorphous notions such as the
“public interest,” not economics and sustainable business plans. Focusing instead on limited consumer safeguards,
such as ensuring continued access to emergency services, would be sufficient
without interfering with the evolution of the network.

A generally
deregulatory, hands-off approach without unnecessary government interference would
produce a far superior network, and, as Mr. Wheeler put it so well, “better
outcomes.” These better outcomes will occur faster and with less money than they
will with overly intrusive government mandates. Producing certainty so that business can feel
comfortable investing in the evolving network can occur if the government
recognizes it generally should adopt a hands-off approach to the IP transition.